00:46:37 · Peter Singlehurst
[00:46:37] S0: My honest take is I don't think there's anything that's systematically different in our part of the market investing in China compared to investing in The US. On... Can numbers be unaudited? Like, yeah. We see unaudited numbers in China. Like, we see lots of unaudited numbers in The US. Like, we've... Like, I can't think... Like, I can think of examples where we've been misled by American companies. I actually can't think of any examples in the private markets where we've been misled by Chinese companies. So I think that... Like, I think it's a classic other ink thing. Right? Like, it's... You know, if you're from a particular place, those people over there, you know, doing something a little bit different seems a little bit threatening. Well, I'm not sure I'm gonna come up with lots of other reasons about why I can't go there. I actually think that when you start breaking down these kind of barriers, you'll realize that there is way more that unites companies, the quality of companies, and what makes them special across geographies than there is that divides them. And you have to always keep a high bar wherever you're investing. That bar should be super high, and that bar should be high in China. Should be high in The US. Should be high in Europe. But when you find amazing companies and where you're appropriately recognizing the risks that you're taking, you're being paid to take this risk, you should take them.
00:47:54 · Guillaume Moubeche
[00:47:54] S1: And from a liquidity perspective, because earlier on, you knew... You know, you mentioned that the valuation of a company is also driven by supply and demand. So that's what can explain, you know, sometimes, like, super high valuation or valuation. I think, like, entropic right now is is a good good representation of supply and demand. So from your side, like, investing in in China or, like, other markets where where you might have, like, a little bit less liquidity. Like, how do you like see it from an investor perspective managing like DPI? Do you always wait for potentially IPO and and more? Or like, do you also, like, decide to sell some part of your portfolio? Like, how exactly do you manage all of that?
00:48:45 · Peter Singlehurst
[00:48:45] S0: I think those things that you've mentioned, like, that there are tools in a portfolio portfolio... Of... In in portfolio management. So when we think about liquidity, most of our companies will become public. So, you know, in the fourteen years that we've been investing in private companies, we've invested in about a 170 companies. And we've seen about 60, 70 IPOs from our portfolios. We've only seen a handful of companies be acquired. So we're deliberately to find companies that have that ambition to be public and will go on to become public. And so over the longer term, most of our liquidity will come from public markets. However, it would be negligent not to be aware of the liquidity dynamics in private markets, and we have selectively used secondary markets, in some cases, to trim holdings that are really working, but where we think the valuation's getting a little bit ahead of themselves, and in some cases, to completely exit positions. Now when we're doing this, most important thing is being really upfront and transparent with companies about what what we're doing. Most companies understand that, you know, you can sell a little bit of your holding but still be very long term in a company. They understand the dynamics and pressures within investment management and funds. We do need to make sure that we are living up to what we say we are. We say we are long term. We are long term. Was just in the data. And so we can't suddenly just start trading around in companies that would not be congruent with not only our investment beliefs, but our reputation. But these are tools, and they are tools to be used within the context of portfolio management, whether that's public market liquidity or private sector market liquidity.
00:50:28 · Guillaume Moubeche
[00:50:28] S1: And, like, you mentioned earlier, I think your goal is to do, like, five x on pretty much, like, every investment. So I assume this is the goal of the fund to return like five x. So whenever you look at your DPI, I understand that you want to obviously wait as long as possible and wait for the IPO because these are bets, you know, that are like long term. But do you have like rules kind of to manage DPI? I've talked to people, you know, who talk about like a third, a third, a third, or like the no regret 50, you know, so it's like when the company has reached, let's say, like your five x DPI, that is your goal. You basically sell like 50% of... Or like 50% of the global position. That way you anchor like 2.5 x DPI, and then the rest can actually, like, be a longer term bet. Like, do you have, like, simple rules, or is this just, like, a case per case basis and... Yeah. So so we underwrite five x when we invest in
00:51:29 · Peter Singlehurst
[00:51:29] S0: a company. Now I would love to be able to tell you we get it right every time. We don't. So, certainly, our funds don't return five times. They've they've got some good returns on them, but not five times. We set that level of five times because it forces us to be ambitious and try to identify outliers. Sometimes... In fact, it's very rare that we find a company that does exactly five times. Like, normally, they either do a lot more less. So the five times is more of a a heuristic or a methodology to help us try to find outliers. With regards to distributions, distributions, so it depends which fund we're talking about. So we manage a number of different pools of capital. We have our first fund, the Schiehallion Fund that I mentioned to you already. That's a permanent pool of capital. It's an evergreen structure. That So fund actually has a mandate to own, if it wants, for a really long time into the public markets. So in that fund, for instance, we still own Affirm. We still own Wise. We still own Tempus. You know, these companies will be in public for a long time. Some of our clients want us to do that. However, we have another group of clients that say, hey. I want a slightly more traditional private company experience. For those clients, we have limited life funds, and those funds... Once companies become public, they're more likely to look for liquidity probably within the first couple of years of a company being public.
00:52:47 · Guillaume Moubeche
[00:52:47] S1: Okay. And and the fund is structured in a way where you take both... Because I'm wondering when you're like a a really, like, long, long term investor like this, do you also take carry and management fee like every fund? Because, I mean, as an investor eventually, you know, like, I mean, you're... It's it's also you like taking the risk and it's cool that you are rewarded for the risk you take. So I think carry is like the best way to align both the investor and the LP. So as a as a, like, fund manager and investor, like, do you get the carry, like, in the same way as every other fund, or how does that work exactly?